No criminal charges for Salinas Valley Memorial Hospital officials

A former Salinas Valley Memorial Hospital CEO and two current board members will not be charged with criminal financial conflicts of interest after an investigation by the Monterey County District Attorney's Office.

At an early Thursday news conference, District Attorney Dean Flippo and Chief Assistant District Attorney Terry Spitz announced neither the hospital's previous top administrator Sam Downing nor board members Harry Wardwell and Jim Gattis will face charges related to allegations they had a financial stake in decisions they made or recommended.

Downing, who resigned in early 2011 amid broad criticism about a $5 million retirement pay package, and Wardwell were the focus of the district attorney's investigation after state Auditor Elaine Howell's office forwarded results of a state audit of the hospital's finances and business practices.

The audit was called for by Assemblyman Luis Alejo, D-Watsonville, who raised questions about the public district hospital last year.

The allegations focused on whether Downing broke the law in early 2008 when he urged the board to deposit $1 million of the hospital system's money into First Capital Bank, whose stock he purchased months earlier. Also in question was whether Wardwell properly recused himself from a board vote involving a $2.5 million contract between the hospital and his employer, Rabobank, where he is a regional president.

Gattis, the board president, was investigated for allegations that he voted on hospital contracts involving the board's legal firm and an architectural firm, which both rent space in a building he co-owns. Those allegations were separate from the state audit.

State law prohibits public officials from participating in making government contracts if they have a financial interest in them, and precludes public employees from influencing such contracts.

Flippo said the investigation was focused on the criminal allegations and not on a range of other issues associated with the hospital. He said his office is cooperating with an ongoing state Fair Political Practices Commission investigation into possible violations of the Political Reform Act, which involves a broader range of governmental decision-making.

Wardwell said he was "very pleased with the outcome, and very pleased the system worked." He said the Bureau of State Audits might have been able to avoid a "lengthy and costly" investigation if it had chosen to ask him and other board members about the allegations before forwarding them to the District Attorney's Office. He said he was looking forward to focusing on the hospital's business.

In a statement, Salinas Valley Memorial administrators said they were pleased the investigation had concluded with no charges being filed and that the district attorney had agreed with the hospital's position that the allegations of conflict of interest "lacked substantiation."

The statement said it was "important that such distractions are cleared" to allow officials to focus on delivering "top-quality care for the people in our community."

Flippo said the investigation found Downing qualified for an exemption under state law that excused his decision to recommend the board make a significant deposit into First Capital. The exemption was triggered, Flippo said, because Downing owned less than 3 percent of the bank's stock and derived less than 5 percent of his annual income from the stock.

Flippo said Wardwell had properly recused himself from a vote on the Rabobank contract and was not required to identify his financial interest verbally or in the board minutes.

However, he said, the rest of the board should not have voted on the contract because they knew about Wardwell's conflict, and the contract may subsequently be void. While illegal, the board's vote on the Rabobank contract was not a crime, said Flippo, and his office has no authority to determine the validity of the contract.

Flippo said the reason for prohibiting board members from voting on contracts where one or more colleague has a conflict is to avoid "vote trading" between public officials who were required to recuse themselves, although he said there was no evidence of that occurring on the Salinas Valley Memorial board.

The allegations made against Gattis were found to be "totally meritless," said Spitz, who said Gattis properly recused himself from voting on the contract and recorded his reason.

In a statement, Alejo defended the need for an investigation and expressed surprise about the outcome.

"Although the action is rare, our nonpartisan State Auditor was correct when following protocol and forwarding information on possible legal violations to the District Attorney's Office," he said. "The district attorney has made his best determination based on the facts of the case.

"Although I am surprised by the decision, I appreciate the hard work done by the District Attorney's Office to look into this matter and determine whether the burden of proof could be met in court. I am very proud of the steps that have been taken so far to correct the mistakes of the past. I will continue to seek legislative solutions to the other problems highlighted in the State Auditor's report while we await the ongoing investigation by the Fair Political Practices Commission regarding possible violations of the Political Reform Act."

The state audit resulted in a number of recommendations involving changes to the hospital's finances and business practices, and Wardwell said most of them have already been implemented.